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Cruise Economy – How Bad is it Really?

Written by: Paul Motter

We know the economy is slow, but are there cruise bargains out there, and how much pain are the cruise lines feeling right now?

I just read the British version of Travel weekly offering a story that read, “Oasis of the Seas bookings slow down.” At first I thought, “Ouch, that is bad. This is a major new ship.” Then I read the piece which said that although 30% of the inaugural season is booked, the pace has slowed down.

What? Here is a ship more than a year from being launched 30% booked for the first year and they think the main news is that bookings are slowing down? We are talking about 30% of 2010. That is HUGE news. Naturally the pace has slowed down, it has slowed down for ALL ships since Paulsen told us we need a bailout. Money has tightened up everywhere.

But for that writer to spin the story as if there is a problem with Oasis bookings, when the first year of a ship that doesn’t even exist yet – 2010, is already 30% booked, is to miss the point entirely. When has a ship ever had 30% of its first year booked over a year out before its inaugural day? Anyway – I just wanted to start with that because it is so off-base in my view.

Moving on to today’s cruise economy.

Some people have likened this current economic crisis to the one that followed 9/11.  Back then, cruises became so incredibly cheap that at least two major cruise lines went bankrupt. But 9/11 was different, it was a travel scare in addition to an economic uncertainty. This is purely economic, but people are still excited about cruising.

Not surprisingly, cruising was the first and the strongest travel sector to recover from the 9/11 fallout? Why? Because ships are incredible facile and adaptable to almost any situation, because they are so easy to move. Secondly, cruises are KNOWN for providing great vacation value in any economic climate. You can get on a ship for a song and your entire vacation is prepaid – if you choose not to spend any additional money.

Back in 2001, right ater 9/11 there was a solid month of nothing but cruise cancellations and not a single booking. Seeing the situation they were in, the President of Carnival Cruise Lines at the time, Bob Dickinsen, sought a solution.

“First we appealed to the fear factor,” said Bob. “We put out news releases explaining how safe cruise ships are. We pulled many of them back from Europe so no flying was invloved. That was really the beginning of ‘drive-to’ cruising, a new theme at the time that became so successful beyond our dreams it is still widely in use today.”

“But this proved to be not enough to get people cruising again, so after a couple of weeks we went to phase 2, we tried appealing to our customer’s patriotism. For every cruise booked we donated $100 to the Red Cross in charge of rehabilitating the victim families of the 9/11 disaster. Unfortunately, this was not the answer either. We did not get a significant number of new bookings.”

“Finally, after about 6 weeks of trying this and that we said ‘let’s just cut the prices and see where people come back.’”

Sure enough, Carnival dropped the prices they had been slowly building over the years from about $699 for a 1-week cruise inside stateroom to $399 for the same. Cruisers came back in droves. Problem solved. Naturally all of the other cruise lines followed suit.

This time around there is no prevarication. Prices have already dropped, but not to the extent we saw back in 9/11. What is different? First of all, that was a travel scare. People were especially afraid to fly, but they were also just afraid to be on large passenger vessels of any kind.

Today, people want to cruise, but their checkbook, credit cards or home equity lines of credit are not cooperating. So, prices have dropped just like they did in 2001, but not nearly to the same extent.

Back in 2001, you could look at prices for every cruise for the following year and everything was on sale. Not so now. Today, only the most “close-in” cruises, those sailing in less than two months from today, are on sale. The remainder may be slightly discounted, but for the most part they are not much lower than they were before this economic disaster hit. And it is notable that this disaster also hit almost overnight. If you recall, it was the day Henry Paulsen gave us the news that we had a systemic problem in our economy that needed to be fixed immediately.

This tells us that bookings of cruises so far are still doing fairly well. Cruise agents tell us that many cruises have been cancelled, but not enough that hefty price reductions for next summer have already appeared. They might, but the fact that they have not yet says bundles, the cruise lines would be foolish to wait until the last minute to discount every cruise they had. Their model is built on sailing full ships, and generally a ship never gets a last-minute discount until as many full-price cabins as possible have been sold.

If next summer’ cruises were not selling at all, we would be seeing discounts already, but we are not yet. However, there is a cycle of group space that must be worked through before we really know how much prices will drop. In other words, many travel agents are holding onto group space they must try to sell at a pre-set price. Whatever they cannot sell will be taken back by the cruise lines.

A year ago, whatever was not sold in a group was usually priced higher than the group price, which is how CruiseMates got its excellent prices on Celebrity Solstice a year ago that are significantly cheaper than what you would pay to sail on that ship next week. Even in this current economic mess there are no close-in discounts for Solstice!

But next March, any space that is not sold in a group will likely be taken back by the cruise lines and discounted so they can sell the ship out.

This doesn’t mean you should avoid buying into group space today, however. In most cases, if you pay for group space and the price goes down you should get price protection even if you have made a final payment. In the old days the cruise lines made discounts for “new bookings only,” but that should not continue with the current situation. So go ahead and look into your group space bargains, and ask the agent if you get a price “guarantee” that if the rate drops for your cabin category in the future you will get a rebate or price reduction.

If we are not seeing discounts in next summer’s cruises yet, where are we seeing massive discounts now? Older ships sailing in the next 8 weeks. NCL seems to be giving the heftiest discounts right now, from $249/week. Carnival is offering 7-day Caribbean cruises starting at $329 and $359.  Mostly, these are on the oldest ships.

Newer ships like Ruby Princess, Carnival Splendor and especially Royal Caribbean are seeing small discounts, but nothing like the above. Freedom and Liberty of the Seas are selling for $549 inside in December. We do see Caribbean Princess for $386 and a 7-night Royal Caribbean Mexico cruise still priced at $499. These are not as steep a discount as you might expect.

Oasis of the Seas – the most anticipated ship in history – is not seeing any real discounts yet at all, especially for the early and holiday cruises. If you book in late 2010 you might see an inside cabin going for $799; oceanview $899 and balcony $989, but those cruises are still two years away! No easy discounts on those ships – not yet anyway.

My guess is that we are going to have see an economic depression before you see significant discounts on Oasis or Allure of the Seas, even if they do hold almost 6000 passengers apiece.

How long will this economic slump last? That is up to you. The government is finally starting to respond in ways where even a cynic like myself is surprised. We are hearing about the real problems and some of the proposed solutions already – the FUD (fear, uncertainty and doubt) seem to be dissipating.

If the consumer starts to spend again, and earnings go up for U.S. companies, which will happen if the housing crisis abates and home prices stop falling month after month, which will happen if the banks start lending again by renegotiating mortgages and restoring lines of credit, which will happen if the government get control over the “toxic assets” and gets the uncertainty out of the marketplace - THEN this whole event will seem like a bad dream.

Let’s hope we can stop this “credit spiral” before too many more people get hurt.

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